The Firm

Show Timings:

Friday: 10.30 pm, Saturday: 11.30 am

Sunday: 9:30am & 11.00pm


Budget 2014: Why Govt May Not Eliminate STT?

Published on Sun, Jul 06,2014 | 02:12, Updated at Sun, Jul 06 at 02:36Source : 

By: Amrish Shah, Partner & National Leader – Transaction Tax, EY

Securities Transaction Tax (‘STT’) was introduced in the Union Budget of 2004-05 by the then Finance Minister, Mr. P Chidambaram.  As the term implies, STT is a levy on the value of taxable securities purchased or sold on a recognized stock exchange in India and is collected by the broker at the time of the transaction itself.  

STT is applicable at different rates depending upon the security (whether equity or derivative) and the transaction (whether purchase or sale).  Current STT rates are tabulated below:


Sr No

Taxable securities transaction

STT rate

Payable by


Purchase of equity shares – Delivery Transaction

 0.1 per cent



Sale of equity shares – Delivery Transaction

 0.1 per cent



Purchase of a unit of equity oriented fund – Delivery Transaction




Sale of a unit of equity oriented fund – Delivery Transaction

 0.001 per cent



Sale of an equity shares or a unit of an equity oriented fund – Non Delivery Transaction

 0.025 percent



Purchase of Futures




Sale of Futures

 0.01 pe cent



Purchase of Options

 0,125 per cent



Sale of Options

 0.017 per cent















If STT is paid on transactions involving sale of shares or units of equity oriented fund, long-term capital gains are exempt from tax and short-term capital gains are taxed at concessional rate of 15% (plus applicable surcharge & cess).

Prior to introduction of STT in 2004-05, many investors did not declare gains on sale of securities and thus avoided paying capital gains tax to the exchequer. With the introduction of STT, while providing investors capital gains tax benefit, it was also ensured that the Government not only plugs tax evasion but also enjoys a steady flow of revenue regardless of whether the investor or trader makes a gain or loss on the transaction.

Generally, in the run up to every Budget post 2004, the stock market community has been demanding abolition of the levy contending that it hurts liquidity and increases overall costs making Indian markets less competitive in comparison to other emerging markets.  However, given the strained fiscal economic situation, it is unlikely that the new government will eliminate STT (which yielded around Rs 6,000 crores in FY 14).

In 2012, with a view to expand the scope of STT levy and to encourage unlisted companies to get listed on the Bourses, STT @ 0.2% was introduced on sale of unlisted equity shares by any holder of such shares, under an offer for sale to the public included in an Initial Public Offer, if subsequently such shares are listed on the recognised stock exchanges.

In keeping with this theme, the government can now consider bringing off-market transactions under the STT regime. Typically off-market transactions such as Open Offer, Buy-back (tender offer route), Delisting, require investors to tender / sell their shares off the market to the acquirers or the companies undertaking the offer.  However, these transactions are subject to capital gains tax as STT is not levied on them.

Non-availability of capital gains tax benefits, at times, influence investors’ decision on whether to tender shares in these offers.  This impacts the participation of the investors, leading to failure of such offers.  The investors instead consider it appropriate to take advantage of the volatility in the stock price in the market created due to the offer and prefer selling the investments on the market so as to make most of the tax benefit.

Of course, besides being an investor friendly measure, the government can garner decent revenue through STT on off-market transactions.  Hence the government should seriously consider this in the forthcoming budget.   Also, there may be certain administrative measures which will need to be taken for collection of STT in off-market transactions in case this is implemented.

Another aspect is that the current tax provisions do not explicitly provide for applicability of STT in relation to on-market transactions involving Indian Depository receipts (‘IDR’). Necessary amendments to clarify this aspect would end the uncertainty on this issue and encourage more foreign companies to raise funds in India through this route. In case STT is introduced on IDR’s treating them on par with equity instruments, investors paying STT should also be able to get respite on capital gains tax and the Government will be assured a steady flow of revenue.

(Mehul Bheda, Executive Director - Transaction Tax, EY contributed to the article)

(Views expressed are personal)


Copyright © Ltd. All rights reserved. Reproduction of news articles, photos, videos or any other content in whole or in part in any form or medium without express written permission of is prohibited.